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Assume that your company finances its operations with 4 0 percent debt, 1 0 percent preferred stock, and 5 0 percent equity. Also assume that
Assume that your company finances its operations with percent debt, percent preferred stock, and percent equity. Also assume that the preferred stock pays an annual dividend of $ and sells for $ a share, that the company's common stock trades at $ a share, that its current common stock dividend of $ a share is expected to grow at a constant rate of percent per year, and that the flotation cost of external equity is percent of the dollar amount issued, while the flotation cost on preferred stock is percent. Now assume that the firm's tax rate is percent, that the firm will not have enough retained earnings to fully fund the equity portion of its capital budget, and that the marginal cost of capital for the last dollar to be raised is percent. Determine the firm's beforetax cost of debt financing.
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